Reply to: Charge VAT on contract software development to Germany?

[ashleymoran]

I think you need:

Your VAT number
Your clients German VAT identifier (the german equivalent)

And something to say under what regulation it is exempt.

http://customs.hmrc.gov.uk/channelsP...E_PROD1_027711

Thanks!!! I would never have realised that.

VAT is a pain however remember you can claim back your VAT on the stuff you buy! Accountant can advise better.

Julian

Say I am VAT registered, and end up doing all my work to Germany. What if then, I'm buying loads of computer hardware, services etc that carry VAT. I'll be claiming refunds all the time because I will be charging 0 VAT. Is that considered "cheating" VAT? Or is anyone entitled to register and do this?

[ASB]

I'm a bit baffled how the people who rang you up asking for a sales list then decided you shouldn't send them one... in the same phone call! Did they know what they were talking about?

These things were all a bit more informal than VAT returns. The original "you must send us some" came around because I was filling in the "sales to EC box" on the VAT return. They simply started sending them to me, so I simply filled them in and sent them back.

At the point I had failed to send one (presumably by this time the record is flagged up as normally sending them and the inter EC sales in non zero) they rang up. They wanted to know whether I had changed to wanting to submit EC sales data electronically. I said "no, but what's it all about anyway" hence the ensuing conversation.

I imagine that they were right (in any event they confirmed it in writing) because they were not the regular VAT office. It was some specialist central unit dealing specifically with inter EC sales.

[ashleymoran]

EC Sales Lists, I remember those. Nice to see my efforts were not to waste...

You wrote the web app?

[Joe Black]

Would this be a good time to mention intra-ec sales lists ?

http://customs.hmrc.gov.uk/channelsP...yType=document

Customs and Excise told us some years ago to fill these out. So we did.

A few years ago I forgot to do one. They rang up and said "where is it". In the ensuing conversation they then said "oh no you mustn't fill those in". Apparently it is for services related to physically exported goods or some such.

It might be useful to find out whether your operations need to be reported on one of these or not (I doubt they do...).

EC Sales Lists, I remember those. Nice to see my efforts were not to waste...

[ashleymoran]

Would this be a good time to mention intra-ec sales lists ?

no!

oh go on then, i can stand one more complication

http://customs.hmrc.gov.uk/channelsP...yType=document

Customs and Excise told us some years ago to fill these out. So we did.

A few years ago I forgot to do one. They rang up and said "where is it". In the ensuing conversation they then said "oh no you mustn't fill those in". Apparently it is for services related to physically exported goods or some such.

It might be useful to find out whether your operations need to be reported on one of these or not (I doubt they do...).

I'm a bit baffled how the people who rang you up asking for a sales list then decided you shouldn't send them one... in the same phone call! Did they know what they were talking about?

Since I won't supply any goods, or even send information on CD, I assume this won't apply to me. I might just wait for them to ring up an ask for it...

[julian_sweet]

Vat

I think you need:

Your VAT number
Your clients German VAT identifier (the german equivalent)

And something to say under what regulation it is exempt.

http://customs.hmrc.gov.uk/channelsP...E_PROD1_027711


Suggests you can just say 'This supply is exempt from VAT'??

Check with an accountant or tax advisor

VAT is a pain however remember you can claim back your VAT on the stuff you buy! Accountant can advise better.

Julian

[ASB]

Would this be a good time to mention intra-ec sales lists ?

http://customs.hmrc.gov.uk/channelsP...yType=document

Customs and Excise told us some years ago to fill these out. So we did.

A few years ago I forgot to do one. They rang up and said "where is it". In the ensuing conversation they then said "oh no you mustn't fill those in". Apparently it is for services related to physically exported goods or some such.

It might be useful to find out whether your operations need to be reported on one of these or not (I doubt they do...).

[ashleymoran]

"Would I show VAT of £0.00 (or even €0.00) on the invoice? Does it matter?"

Well, I imagine there is probably some EC rule. Show vat of zero and a rate of zero.

Also I am pretty sure you need to quote the customers VAT number or equivalent on the invoice.

[You certainly do when the place of supply is the UK but I suppose it is possible this might not be required when the place of supply is not UK].

Ok cool - this is the only last issue to resolve, and seems pretty minor. I'm sure an accountant or HMRC can tell me yes or no.

Thanks for your time on this, you've been really helpful. I was struggling to make sense of it on my own. VAT on its own was making permanent work sound appealing, that's a scary thought

[ASB]

"Would I show VAT of £0.00 (or even €0.00) on the invoice? Does it matter?"

Well, I imagine there is probably some EC rule. Show vat of zero and a rate of zero.

Also I am pretty sure you need to quote the customers VAT number or equivalent on the invoice.

[You certainly do when the place of supply is the UK but I suppose it is possible this might not be required when the place of supply is not UK].

[ASB]

Ok. I was getting confused... I read the bits of Schedule 5 so much I was starting to think they were a list of VAT-exempt services. But they are actually a list of services where the place of supply is considered to be the customer's location.

Right?

Yes.

[ashleymoran]

no it is not zero rated. It is is a supply in the UK to a UK entity. It is subject to UK vat.

Ok. I was getting confused... I read the bits of Schedule 5 so much I was starting to think they were a list of VAT-exempt services. But they are actually a list of services where the place of supply is considered to be the customer's location.

Right?

[ashleymoran]

"Is the supply zero-rated, and does that mean that I can claim VAT I pay out on things like computer hardware?"

Individual supplies do not affect what you can or cannot reclaim. If you are VAT registered then you can reclaim [In fact our usual position was that we were always net reclaimers because output VAT was usual nil]. Ok, now thats the easy one.....

Wish they were all like that

If you believe you services are covered by 12.4.2 then it is within schedule 5 para 3.

This is a service made by a UK supplier to a foreign (EC) business entity.

Under 11.3 because these services are covered by section 12 they are treated as made by a UK supplier in the foreign country to the foreign business. [See diagram 4].

So now we know where it is supplied. Go back to section 1.5. Quite clearly there is no UK vat to be charged. However, the supply is liable to VAT (potentially) in Germany.

Yeah, this is is what I thought. The flow charthere seems to say that.

I have no idea of the German rules, but in this position every other place I have dealt with did not involve local VAT so I doubt Germany will. There is even the possibility that you might have to charge German VAT. This is all simply because the place of supply has moved from the UK to Germany - even though you haven't.

Supplies are only liable for VAT in one EC state. So where the supply is made in the UK it will not be liable for German VAT in any way - also it will be zero rated from the UK perspective because it is cross border supply to business.

Would I show VAT of £0.00 (or even €0.00) on the invoice? Does it matter?

The only VAT you can potentially need to charge is German - and then only if your services are definitely covered by Schedule 5 VAT act.

I think most folk believe they are making UK supplies in this position. They mat well be because their circumstances may be different, but there is at least the risk they are not.

From a practical view with our international clients we simply didn't worry about it. We invoiced with no UK vat and didn't worry about their end.

Based on the flow chart above, the customer has to account for VAT, so it's not my responsibility. I'm pretty sure you're right, that you don't charge VAT, and let them worry about it.

Thanks for the help with this!

[ASB]

But what happens if I do exactly the same work for a company in the UK? Is it still zero-rated and shown in the same way?

no it is not zero rated. It is is a supply in the UK to a UK entity. It is subject to UK vat.

[ASB]

"Is the supply zero-rated, and does that mean that I can claim VAT I pay out on things like computer hardware?"

Individual supplies do not affect what you can or cannot reclaim. If you are VAT registered then you can reclaim [In fact our usual position was that we were always net reclaimers because output VAT was usual nil]. Ok, now thats the easy one.....

If you believe you services are covered by 12.4.2 then it is within schedule 5 para 3.

This is a service made by a UK supplier to a foreign (EC) business entity.

Under 11.3 because these services are covered by section 12 they are treated as made by a UK supplier in the foreign country to the foreign business. [See diagram 4].

So now we know where it is supplied. Go back to section 1.5. Quite clearly there is no UK vat to be charged. However, the supply is liable to VAT (potentially) in Germany.

I have no idea of the German rules, but in this position every other place I have dealt with did not involve local VAT so I doubt Germany will. There is even the possibility that you might have to charge German VAT. This is all simply because the place of supply has moved from the UK to Germany - even though you haven't.

Supplies are only liable for VAT in one EC state. So where the supply is made in the UK it will not be liable for German VAT in any way - also it will be zero rated from the UK perspective because it is cross border supply to business.

The only VAT you can potentially need to charge is German - and then only if your services are definitely covered by Schedule 5 VAT act.

I think most folk believe they are making UK supplies in this position. They mat well be because their circumstances may be different, but there is at least the risk they are not.

--------------------------

From a practical view with our international clients we simply didn't worry about it. We invoiced with no UK vat and didn't worry about their end.

[ashleymoran]

Sorry I missed the not

No you didn't, I just added it in

Finding anything on HMRC can be a bit of a nightmare I know.

"vat services place of supply" is a good query.

This is probably the most relevant document:-

http://customs.hmrc.gov.uk/channelsP...yType=document

I had no idea how complex it is

Section 1.5, 1.6 and 11 are probably the relevant ones. If you are providing intellectual services then the supply of services is the EC member state and they are being provided for business. [no vat]

Otherwise the supply of services is probably in the UK and zero rated - provided you have the vat number of your customer and you have not been informed it is invalid.

This is not what I expected at all. I thought that working as an IT contractor (at least in the UK) you charged VAT. From the page you linked to above I found these two extracts:

11.8
...
If you supply advertising services to a business in France, the place of supply of your service is France. This is because your customer belongs in another member State and receives your supply for business purposes. Your customer is required to account for any VAT due in France.

12.4.2
...
production of customised (“bespoke” or “specific”) computer software, including digitally downloaded software, as well as the services of adapting existing packages. However, some “off-the-shelf” software packages are treated as supplies of goods

Two things I don't understand:
What does it mean in this situation that "Your customer is required to account for any VAT due in France"?
Is the supply zero-rated, and does that mean that I can claim VAT I pay out on things like computer hardware?

Where there is a potential gotcha (and I never got a satisfactory confirmation of this) is in relation to the FRS vat scheme.

Export turnover is included in the total you need to account for vat on in the FRS unless it is outside the scope of UK vat. Hence confirmation can be important - after all you don't want to be paying 13% of the value of services to HMRC when you haven't charged it.

So, no you aren't going to need to charge VAT but be cautious if you are on the FRS scheme because it will be to your disadvantage unless you can agree that the supply is outside the scope of UK vat.

Ah ok. I wasn't planning to go on the flat rate scheme, but I'll bear this in mind.

So I think I'm convinced that I don't show VAT on invoices to Germany (or do I show it as £0.00?). But what happens if I do exactly the same work for a company in the UK? Is it still zero-rated and shown in the same way?